Ask William Nickerson!
I was in the San Francisco airport waiting for a flight last week when I found a synopsis of Nickerson‘s “How I turned $1,000 into Three Million in Real Estate In My Spare Time“. If you don’t know about Nickerson, he is one of the 1960’s original real estate gurus. The synopsis of his book was great, so I wanted to share Nickerson’s ideas with our readers.
Nickerson’s main idea is that you can make a ton of money in real estate using a hybrid savings, renovation and flipping approach. As near as I can tell, it has the following steps:
1) Save enough money for a 25% down payment.
2) Buy a rental property that needs some renovation. Hold onto the property for a couple of years, use your savings and rental income to paint and renovate it while its still rented. Sell the place for a 40% mark up.
3) Take your equity and buy a small 4 unit apartment building that requires renovation. Over the next two years invest approximately 1/6th of your equity, along with any net rental income to renovate the property while still renting it out.
4) Sell the 4 unit for a 40% mark up. Take your profits after paying off the loans and sales commissions. Your profit and equity should have increased incrementally.
5) Take your equity, savings and profit and buy an 8 unit property. After the usual renovations sell the property two years later for a 30% mark up.
6) Rise and repeat.
Using 1969 dollars Nickerson figured that one could transform $39,000 into 1.2 millon over a 20 year period via this system. After 20 years he argued that you could relax and enjoy the rental income while earning a reasonable six percent return.
According to Nickerson’s book, this should work if you don’t diverge from some core principles
1) Don’t borrow more than you can repay from your rents.
2) Only buy properties in need of renovation.
3) Only make improvements that increase a property’s value.
4) Keeping selling at a profit and reinvesting your profits.
Well you’re probably thinking that this sounds all very well in theory, but isn’t investing risky? According to Nickerson, the risk is lessened because real estate retains its intrinsic value even in difficult times. He also notes that banks and insurance companies are more willing to lend on real estate rather than to sole proprietor businesses, so its easier to get funding.
Best,
James